IT departments are turning to strategic sourcing and outsourcing more and more as they strive to provide mission critical business systems and operations support while keeping costs under control. With more IT capabilities being sourced from outside vendors and partners, the need to cultivate and maintain successful outsourcing relationships is essential to achieve desired outcomes – such as maximizing return on investment (ROI), achieving required service levels and adapting to unanticipated change.
Conventional models for IT sourcing and outsourcing are known to deliver highly variable results that far too often fail to meet the needs of the customer or the service provider.
Outsourcing is broken
For many companies, the results from outsourcing IT infrastructure and application development range from disappointing to disastrous.
Though the root cause is unique to the specific circumstances of each relationship, there are some universal flaws in conventional outsourcing relationships that can result in reduced value, lack of innovation, increased risk, compromised service levels, combative interactions and lack of alternatives.
Examples include:
- Misalignment of Incentives. Quite often the customer and service provider have conflicting incentives and goals. Ensuring these factors are aligned (and remain aligned) is often overlooked in the rush to achieve customer-desired benefits and service provider profits.
- Unbalanced Relationships. In many cases, the customer lacks the skills, experience and time necessary to implement and manage an outsourcing relationship and is ill-suited to be an effective partner with the service provider. Just as frequently, service providers are in a rush to win the deal and are unable to gain sufficient knowledge of the customer’s requirements. Most importantly, neither party effectively anticipates the factors that will drive change over the life of the agreement, resulting in a services agreement that does not match the true needs of the customer over time.
- Activity-Based Contracts. Many contracts are focused on the discrete activities to be performed--specifying how the activities are to be done, and including Service Level Agreements (SLA) that are crafted to govern the activities. This approach tends to constrain innovation and the transformation of how the work is done. Furthermore, these types of contracts almost always create perverse incentives that lead to negative results.
- Ineffective SLAs. Over-reliance on Service Level Agreements that measure technical factors, but obscure value -- failing to represent or measure business factors.
- Outmoded Contract Terms and Conditions. Outsourcing has settled into “standards and practices” that are adopted because “this is how it’s always been done” rather than addressing the actual requirements best suited to the specific client and vendor context. As a result, there can be structural impediments to client/vendor alignment that inhibit rather than facilitate desired outcomes.
- Template-driven sourcing methodologies. Templated “RFP” processes provide a façade of thoroughness and rigor, but in fact allow masking or avoidance of the significant issues and cost drivers in the imminent and ongoing outsourcing relationship.
There is a better way
Successful outsourcing relationships must reliably deliver IT infrastructure and application development at measurable value, at costs that are aligned with business objectives and that offer incentives that encourage innovation to transform how the work is done over time.
Capto is leading Outsourcing 2.0 through its research partnership with the University of Tennessee (UT). UT was commissioned by the United States Air Force to research Outsourcing in a four year, multi-million dollar study. The result of this research is a structured methodology and toolset called Vested Outsourcing.
Capto is extending and adapting the Vested Outsourcing methodology and tools for IT – calling it Vested IT. Vested IT will transform IT Outsourcing, unlocking innovation and dramatically improving operational and economic outcomes over the life of an outsourced relationship.
Because there are so many factors to take into account, more and more companies are realizing the importance of engaging with an independent, third party sourcing advisor such as Capto Consulting, who has been through the process many times and has experienced first hand what works and what doesn’t. By leveraging Capto’s experience, companies can avoid first time mistakes, save time, money and reduce the risk of outsourcing initiatives that fail to deliver desired outcomes.
The former CIOs, CFOs, IT managers and executives of outsourcing companies that make up the Capto team, are in a position to help clients avoid outsourcing mistakes and maximize outsourcing ROI because they have first hand knowledge which can be readily applied. That means that along with being able to quickly identify issues, we can also devise a plan of action that aggressively achieves REAL economic value and service quality improvements in a short period of time. With Capto Consulting, companies have access to the type of experience and expertise needed to “go far, quickly.”
If you want to go quickly, go alone. If you want to go far, go together. - African Proverb
Capto Consulting - Go Far, Quickly